Investigation into the Relatively Low Uptake of Residential Stock within South African Real Estate Investment Trusts

Abstract

Since the establishment of the first South African Real Estate Investment Trust (REIT) in 2013, the listed property sector has seen significant growth with a current market capitalisation of R400 billion in comparison to 1998 where the market capitalisation was R5 billion. However, South African REITs invest less in the residential sector when compared to the global REIT market. The purpose of this research was to determine the factors that have attributed to this low uptake of residential stock. This was achieved using a qualitative survey consisting of semi-structured interviews with listed property fund managers and upper management from four REITs listed on the South African stock exchange. The findings indicated a number of factors that have influenced the low uptake of residential stock. These have been identified as the financial performance of residential real estate in South Africa, the nature of residential real estate, and the maturity of the REITs sector in South Africa. These findings make a valuable contribution to the very limited literature on REITs in South Africa. Furthermore, understanding these factors is crucial in further developing the REITs sector in South Africa which has the potential to catalyse broader developments for housing and the economy.

Re-directing developers: New models of rental housing development to re-shape the post-apartheid city?

“…By contrast, the Corridors attract developers specifically interested in creating stocks of affordable rental housing which are leased to tenants. In our research, developers stressed how large this market is and how undersupplied – with demand seen as almost unlimited: ‘we know that there is a huge undersupply of this type of accommodation in Joburg never mind the rest of the country, so we believe that we’re not going to be able to build enough of these’ (Developer8, 1 September 2016; see also Butcher, 2016; Nurick et al., 2018).…”

“…The South African property industry is very poorly documented in academic literature. Nurick et al (2017Nurick et al ( , 2018 provide useful analyses on aspects of the industry, but more comprehensive accounts are lacking. The paper therefore draws on primary data including interviews and observations, as well as reports, news articles and other grey material to provide a background on the industry.…”

“…According to the Property Sector Charter Council (2015), the size of the South African (SA) property market was R5.8trillion in 2014/15, some 72.5% of which was in formal residential property. However, commercial property (retail, offices, industrial and leisure) has been the main focus of institutional investors due to perceptions of the poor financial performance of residential property, high risks (including management intensity), and the lack of units at the necessary scale (Nurick et al., 2018). Investment patterns in commercial property have been shaped by slow economic growth since the collapse of a property boom (2004–2008), and a cautious approach has developed following over-investment particularly in office space and suburban development during this period (Butcher, 2016; Harrison, 2016; SA REIT Property Journal , 2017).…”

“…There have been some financial flows into these funds from overseas, including listing of foreign REITs on the Johannesburg Stock Exchange (Anderson, 2015) as well as the use of derivatives to develop property portfolios abroad, notably in Eastern Europe and Australia (Nurick et al., 2017; SA REIT Property Journal , 2017). By 2017, some 40% of REIT earnings were generated from offshore portfolios (Nurick et al., 2018) and over the 5 years to 2016, SA listed property portfolios invested overseas grew from less than 5% to 36% of total assets ( Financial Mail , April 2016). Certainly, firms are seeking enhanced profits in undervalued markets elsewhere, but ‘the bottom line is that SA funds don’t have a choice other than to look for new opportunities elsewhere’, given the market conditions in South Africa ( Financial Mail , April 2016).…”

“…While SA REITS have very limited exposure to residential/rental investments (3%) compared with about 14% globally (Nurick et al., 2018), given the scale of low-income housing need, affordable rental is increasingly seen as an opportunity and new partnerships are emerging involving some of the larger firms in inner city affordable rental housing, as well as others such as Developers 10 and 12 whose developments are more spatially diversified. These firms are building a portfolio of property to generate the scaleable assets required for such investment vehicles (CAHF, 2017).…”